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Mr. DOLLIVER. But not on trainloads and carload lots.
Secretary WEEKS. The practice has not hurt small business, in my judgment, and I don't think it would.
Mr. DOLLIVER. Am I in error when I say that the lower rates for trainload lots as opposed to carload lots are not permitted ?
Secretary WEEKS. It is now permitted.
Secretary WEEKS. Do you want to read that decision, there, Mr. Ray?
Mr. Ray. Yes. This appears at page 8 of the portion of the statement which I presented, and it is a quotation from the decision in Molasses from New Orleans, Louisiana, to Peoria (236 I. C. C. 485), in which, after some previous history to the contrary, the Commission recognized this practice:
We find that there is nothing unlawful in the establishment of railroad rates on a quantity larger than a carload, when moving as a single shipment, where, as here, they are designed to meet competition from other modes of transport whose unit of transportation is not limited to single carloads, provided a just and reasonable relation in rates as between the larger and smaller quantities of the same traffic is maintained.
That is another way of speaking of the cost relationship feature to which I referred.
Mr. Dolliver. If that is the present law, there is not very much occasion for changing it, then, if that is the case.
Mr. Ray. It is largely a codification, sir, of what we think the present statute justifies.
Mr. DOLLIVER. Actually, there are not very many of those situations in effect at the present time, are there?
Mr. Ray. I couldn't say how many, myself, actually.
Mr. DOLLIVER. One other matter is this: You have referred to the fact that the freight rates now must carry a part of the loss or a substantial part of the loss that is suffered by the railroads for the carriage of passengers. You quoted some figures on that. After all, is that not a matter of accounting, as to how they arrange their accounts in the railroad business, as to whether they take a loss in one type of carriage or the other? Is that not really what it comes
Secretary WEEKS. Well, I am not an expert on railroad accounting, but I would think there were limitations on the manner in which they could vary their costs. I would have to do a little backchecking on that. But it is obvious, I think, to anybody, that in the railroad operation, where there is freight and passenger business involved and where there is a very substantial loss in the passenger operation, that even if the costs were varied to suit the convenience of one segment of the transportation or another, I don't think they could vary very much or be changed to produce a very much different result.
Mr. DOLLIVER. I presume before these hearings are over we will have some people from the railroad industry who can enlighten us on that subject. But that leads me to this question, with respect to another branch of transportation, another method of transportation.
It seems to me that under these proposals that are in this bill, the surface transports, particularly the railroads, will be enabled to reduce
their passenger fares from relatively distant points, where there is air competition,
and for the points in between, where there is no air competition, they can hold up their rates. Would you comment upon that possibility ?
Secretary WEEKS. On the passenger business?
Secretary WEEKS. No. I should have to ask for help on that one, Mr. Congressman. That would be, Mr. Ray points out, the same question as between the long- and short-haul discussion that we have been having.
Mr. DOLLIVER. Yes, it is related to that, but also to the passenger business.
Secretary WEEKS. And as was pointed out, there is no change in the substantive provisions.
Getting into the passenger end of the operation, the short-haul rate in the passenger business might very likely be intrastate and come within the purview of the State regulatory body.
Mr. DOLLIVER. I am thinking of a suppositious case. We have a first-rate air transport in this country for passengers at the present time, and the greatest development that we have had is between large centers of population, San Francisco and Chicago, let us say. It would seem to me that under this supposed legislation the railroads between the west coast and the Middle West might cut their charges way below the cost of going by air between these centers of population where there is air competition, and maintain or increase their present rates at the intermediate points, where there is no air competition. I would like your comments about that.
Secretary Weeks. Then immediately you get, we will say, a justifiable complaint, which is brought through the suspension process that is provided. The remedy is there with the Commission if the product of this rate cutting that you speak of is discriminatory and is less than the fair and reasonable minimum rate.
Mr. DOLLIVER. As to that provision for making complaint, there aren't very many passengers on the railroad train that are going to take the trouble to come to the Interstate Commerce Commission and make a complaint about their fare between Omaha and Rock Island,
let us say.
Secretary WEEKS. Of course, as a practical matter, the Commission does not, today, set rates on everything. Most of their rate operation comes from complaints of one nature or another that come through the suspension process.
Haven't we got something on that right there, that I can refer to? This is from the report of the Interstate Commerce Commission, commenting on the legislation.
It says here:
In the past 35 years our power to prescribe precise rates for a zone of reasonableness to use the words of the Advisory Committee, in referring to maximum and minimum rates has been used in relatively few instances. By far the greater number of our outstanding rate orders prescribe maximum rates or minimum rates, but not both. We have at all times recognized the undesirability of making such an order more restrictive than necessary.
And with the thousands and thousands of rates that are in operation, they, I think, would never get through the never-ending process of trying to prescribe rates. And they don't do it in all instances, in fact in very few.
Mr. DOLLIVER. Our rate structure on the railroads and other forms of transportation has rather grown haphazardly over a long period of time. Inequities and injustices have been corrected through the instrumentalities of the Interstate Commerce Commission and the commerce commissions of the States; is that not true?
Secretary WEEKS. I think so. But if I could make this point: I think to consider this substantively as far as the rate setting is concerned, we haven't made radical changes except in these three specifications; that the Commission, in establishing a rate, shall not consider: (1) The effect of such charge on any other mode of transportation; or (2) the relation of such charge to the charge for any other mode of transportation; or (3) whether such charge is lower than necessary to meet the competition of any other mode of transportation.
Now, that comes under the head of what I have referred to several times as the fare-share theory. In other words, the Commission today, in deciding whether or not a changed rate is lawful, takes into consideration what effect the changed rate will have on the competition, on a competing mode of carriage. Suppose you have one mode of transportation, and your competitor operates another mode, and you set a rate much lower than your present rate. Since the competing mode of carriage would stand to lose a substantial portion of its business, your proposed rate may be unlawful. But under this legislation, the rate would not be set on the basis of how it affects the business of the other carrier.
Mr. DOLLIVER. In other words, the Commission would not take into consideration the effect of the rate upon competitive means of transportation.
Secretary WEEKS. That is correct, sir.
Mr. DOLLIVER. Mr. Chairman, I thank you very much for your courtesy.
Mr. HARRIS (presiding). Mr. Flynt !
Mr. FLYNT. Mr. Secretary, on this question of selective rate reduction, I think from some of the questions that have been put to you, that is the thing about which most of us are concerned. I know, that I, for one, do not fully understand the full implications of it.
In arriving at the report, was any consideration given by the President's Advisory Committee to the approximate spread percentagewise -of course, we cannot bring it down to dollars and cents, but percentagewise between the minimum rates allowed and the maximum rates allowed
Secretary WEEKS. I wouldn't say so, myself. Mr. Rothschild wants to comment on that.
Mr. ROTHSCHILD. May I speak for a few minutes about rates? Mr. FLYNT. Yes, sir.
Mr. ROTHSCHILD. I think it is not too difficult to see that this is a very involved and difficult subject, this question of transportation rates. And I think it is understood by very few people—and I am sure I don't understand all of it, either. But it might be well to bear in mind that each year there are filed something like 150,000 tariffs
with the Interstate Commerce Commission. Now, these tariffs could contain and do contain anywhere from a few rates to hundreds of thousands of rates. Some of the individual tariffs are as large as an unabridged dictionary. And these rates are filed by carriers, who set the rates themselves. Only in cases where a protest is filed by someone or on its own initiative does the Interstate Commerce Commission come into the determination of a rate. And it comes in this fashion. It determines that a rate is lawful or unlawful based on the standards which have been set up over these many years, many of which are statutory.
But when, as in the comment which was just read a few moments ago, a protest is filed asking the Commission to find that a certain rate is unlawful, it is not filed on both ends generally that is to say it is both too high and too low. The Commission is asked to find that a rate is unlawful because it is too low. And in another instance, but an unrelated one generally, it is asked to find that another rate is too high. Therefore, by determining that either a rate is unlawfully too low or unlawfully too high, it has determined a rate. But to get the relationship, there were 3,500 protests filed last year, against 145,000 tariffs, containing millions of rates.
If I can go back to the statement which I made yesterday, on page 31, and reread it, it goes as follows:
A carrier may not reduce rates selectively for the purpose of meeting carrier competition at one or some points, but not at others, where there is commercial, market, or industrial competition. Its decision must be to meet it at all points where it occurs with roughly equivalent figure or not to meet it at all. And proposed rates which fail to meet this test may, under the bill as well under the present act, be protested and suspended for investigation. Competing carriers as well as shippers may lodge such protests.
Mr. Flynt. Mr. Rothschild, you anticipated; because that was may next question.
Mr. ROTHSCHILD. Sorry, sir.
Mr. FLYNT. I remember very well when you read that, because I underlined it and made some notes in the margin on it.
Can you reconcile that paragraph which you just read with the provision on page 3, which I referred to earlier this morning-I think lines 17 through 19-where it says that rates, fares, and so forth, may be applied in connection therewith, which results in charges not less than just and reasonable minimum charges, nor more than just and reasonable maximum charges? And that goes back to the initial question that I asked after we resumed after lunch today.
The thing which concerns practically all of us—I know it does members of the committee with whom I have discussed this, and I am sure it does those of you who are attempting to answer the many questions which we have—is that if and when a carrier is permitted to set his own rates, bet ween a minimum and a maximum, I for one am apprehensive that that will permit selective rate reduction, which of course is the reason that the Interstate Commerce Act was initially passed in 1887.
Mr. ROTHSCHILD. Mr. Flynt, a carrier does that now, has always done it, and under the new legislation would continue to do it. This makes no change whatsoever in that business of initiating rates. The carrier has always made his own rates, as I tried to point out just a few minutes ago. And those rates are the rates as filed with the Commission unless protested.
Now, if they get too high, someone protests. If they get too low, generally a competing carrier protests. But otherwise, millions upon millions of them go into effect just on their filing by the carrier. They always have, ever since 1887, and still do.
Mr. Flynt. All right, but under this will there be a protest allowed so long as the rate set is within the maximum and minimum spread!
Mr. ROTHSCHILD. Well, it would be up to the Commission to make a determination as to whether or not it was reasonable whenever challenged, just as they are doing today. The only difference would be the 3 points that Mr. Weeks touched on, where he said those 3 items would not be taken into consideration in making such determination.
Mr. Flynt. Because I am concerned with the possibility—and this is the thing I wanted to know about, as to whether this proposed bill would so authorize-whether the carrier could assign different rates to different shippers for the same commodity over the same general distance, provided he kept within the minimum and maximum spread.
Mr. ROTHSCHILD. No, sir. That would constitute a discrimination.
Secretary Weeks. I am sure he could not do that. Certainly that is not the intent of the legislation. Mr. Ray wanted to comment on this, too.
Mr. Ray. I merely wanted to add one thing, which I am sure is well understood: that there is no suggestion that in the filing of a tariff, the advancing of a new rate, in accordance with present practices, the carriers would be fixing both a maximum and a minimum. They would be fixing a precise rate, of course, that would be the same for all shippers, or there would obviously be a discrimination.
Mr. Hinshaw. Will the gentleman yield? Let us get back to the some tariff lines in the bill that he is talking about. And I would like to ask whether a court, a competent court of the United States. has decided what a just and reasonable minimum charge should be, and a just and reasonable maximum charge? Or have they decided merely on the zone of reasonableness?
Mr. Ray. The basic and first thing to note in that connection, I would say, is that generally speaking the courts have upheld the determinations of the Interstate Commerce Commission unless they have found some departure or abuse of discretion on the part of the Commission.
Mr. HINSHAW. That is conceded. But I am talking about the terminology that is here employed. It has to be interpreted some place, sometime, by some court.
Mr. RAY. "Well, of course, it has been interpreted a great many times by the courts.
Mr. HINSHAW. This language here?
Mr. Ray. Yes. It is no different in this respect than it is in the present law. And the question of what is a reasonable minimum has come before the courts many times, just as it would under this statute.
Now, the courts have held, for example, that the Commission, under the present statute, as passed by Congress, is justified in holding that Carrier A can do no more than meet, cannot go below, Carrier B's competition in the minimum rate, even though a lower rate on the part of the opposing carrier wonld be compensatory and nondiscriminatory.
Mr. HINSHAW. Do you feel, in accordance with the act that you have proposed here, that a compensatory rate may be considered as just and reasonable?